The relationship between hotel owners and brand executives is sometimes strained by the challenges both parties face with rate and supply.
LOS ANGELES—The partnership between the big hotel brands and the owners who fly their flags requires a delicate balancing of their shared and distinct goals.
During the Industry Real Estate Financing Advisory Council session at the recent Americas Lodging Investment Summit, owners and brand executives expressed their concerns over how to best maintain that balance, particularly during a challenging time when it’s difficult for hoteliers to push rate.
Overall, growing supply—both from branded partners and the alternative-accommodations segment—has hurt the industry’s ability to raise rate, and that can add strain to a brand-owner relationship, said Mit Shah, founder and CEO of Noble Investment Group.
The brand-owner relationship has never been perfect, but it is founded in mutual trust and respect, as owners help create a viable organization from which brands can grow, he said.
“While we all celebrate the record hundreds and thousands of rooms that continue to get delivered in the marketplace and recognize that they’re waging these battles on loyalty, on Main Street, we find that the wars are really hard to win,” he said. “They’re hard to win in a number of ways because we’re not seeing rate growth. We see record occupancy without rate growth.”
New supply is coming in at record paces, but the industry isn’t taking enough costs out of the system fast enough to allow owners to have the profitability they enjoyed over the last generation or two, Shah said. Owners feel like they’re partners with the brands, but there could be better communication and cooperation to solve problems, he said.
RLJ Lodging Trust President and CEO Leslie Hale said the industry needs to assess whether its current situation with supply is cyclical. Alternative-accommodation supply is affecting pricing power, and brands are doing what they need to from a loyalty perspective, but that will also have an impact, she said.
“We don’t know what the multiple implications of that are going to be,” she said.
Understanding what actions now will mean later will help brands and owners decide how to invest, she said.
The hotel industry has worked together to stress to local and state government officials that alternative accommodations must play by the same rules as hotels, but the brands and owners also must cooperate to craft a customer-value proposition that makes guests want to choose branded hotel products, Hilton CFO Kevin Jacobs said.
Hotel occupancies don’t reach the level they’ve achieved today without finding ways to accommodate more demand, he said, and growth doesn’t happen without all players being invested in it.
“We fully understand that those folks who are investing their capital to partner with us to help grow our system have to make money,” he said. “They have to feel good about partnering with us or they’re not going to choose to partner with us in the future, and then we’re not going to have the kind of growth rate that we do today.”
Growth also should be sensible and mutually beneficial, he said.
“We’re growing because it enhances our network effect and makes our loyalty flywheel more powerful and leads to better results for owners,” Jacobs said. “If anything about that changes, then we’re going to be in just as much trouble as everybody else.”
About 18 quarters ago, Marriott International’s pipeline inverted, meaning it had more properties under development outside of North America than in the region, said Tony Capuano, group president of global development, design and operations services at Marriott International.
“That’s a phenomenon that I think will extend in perpetuity,” he said. “The vast majority of our growth going forward will increasingly be outside of North America.”
Robust loyalty programs help to guide not only guest preference but also where development is concentrated, he said.
Capuano said Marriott, like Hilton, drives earnings through same-store sales, revenue-per-available-room growth, returns to shareholders and net unit growth.
“Both of us have a model where all of that growth is on the shoulders and balance sheet of our owners and franchisees, and if we’re not making or creating an economic proposition for them that is compelling and allows them to drive their return for themselves and their investors, then the whole model falls apart,” he said.